Morgan Stanley posted a 60 percent jump in quarterly earnings Wednesday, setting new records and exceeding expectations as debt and equity trading revenues surged.

The investment banking and brokerage giant said income from continuing operations rose to a record $2.56 billion, or $2.40 a share, in the first quarter ended Feb. 28, from $1.60 billion, or $1.51, a year earlier. Net revenue rose 29 percent to a record $11.0 billion.

The results exceeded the average analyst earnings forecast of $1.88 a share by about 28 percent. Morgan Stanley shares jumped 2.87 percent to $78.30 in electronic trade before the opening bell.

Including $395 million in stock-based compensation, net income was a record $2.67 billion, or $2.51 a share.

"This was an astounding trading quarter. They must have been beautifully positioned for the subprime meltdown and long volatility when equity markets tumbled," said Sanford Bernstein brokerage analyst Brad Hintz. "What's interesting is that the two firms that performed the best, Goldman Sachs and Morgan Stanley, have the most diverse trading businesses."

Morgan's results showed that its trading desk continues to place bigger bets under Chief Executive John Mack, with the average daily value-at-risk rising by half to $90 million from the previous quarter. Yet trading revenue rose at an even faster pace, Hintz observed.

Like Goldman last week, Morgan Stanley turned in a strong quarter despite worries among investors that stock market turbulence in late February and problems in the subprime mortgage sector would hurt banking and trading results.

Pretax income from Morgan Stanley's investment banking and trading division soared 71 percent to $3.0 billion, boosted by a 30 percent increase in debt trading revenue from last year.

At the same time, Mack's efforts to turn around laggard businesses also showed progress.

The company's brokerage arm boosted revenue by 18 percent to $1.5 billion, while asset management, which made a series of acquisitions last year, generated $905 million in revenue, up 28 percent.

One business that suffered, though, was the Discover credit card and payments division, where pretax income fell 22 percent to $372 million while revenue fell 6 percent to $1.03 billion from last year. Discover is scheduled to be spun off as an independent company in the third quarter.

The quarter provides further evidence that Wall Street earnings continue to defy gravity, despite hand-wringing about mortgage market woes and slowing economic growth.

Morgan Stanley, which acquired subprime lender Saxon Capital late last year, saw its shares fall about 6 percent this year, compared with a 4 percent decline in the AMEX Securities Broker-Dealer Index.